Billion Dollar Blowout: Billion Dollar Blowout

Several days before Katrina struck, John Walker shut down production and evacuated crews from the oil and gas fields that his company operates in the Mississippi Delta. The CEO of EnerVest, a Houston energy-asset-management firm, was luckier than most. Katrina spared four of his fields, though the damage to a fifth was ugly. The storm blew a barge five miles down the bayou from its moorings in marshy Garden Island Bay. Nearly every piece of oil equipment was destroyed, and Walker estimates it will take several months to get that field running at full capacity. "When there's this much damage, there are only so many spare barges, compressors and generators out there," he says. "We're losing 1,000 barrels a day."

Katrina didn't just fling barges across bayous--it ripped a hole in the nation's economy. The storm crippled oil and gas production in the Gulf, idled refineries and chemical-processing plants and devastated New Orleans' $7 billion tourism industry. The city stands to lose more than $500 million a month in visitor dollars. J. Stephen Perry, head of the Convention and Visitors Board, says the empty and damaged hotels "are like Baghdad on a bad day." But for the national economy, what's more critical is that Katrina disrupted a vital node in the country's transport network. You name the commodity--coffee, fertilizer, lumber, steel, wheat--it ships through the Gulf's ports, rails and riverways. All told, Katrina knocked out a region that contributes $130 billion to GDP, roughly 1% of the national total, according to Economy.com Risk Management Solutions, a leading risk-assessment firm based in Newark, Calif., estimates that damages will run up to $100 billion. Insurance companies are on the hook for some $25 billion. Our guide to the fallout:

How high will energy prices go?

America's energy infrastructure was running at full capacity before Katrina hit, and the fact that so much of that capacity is concentrated in Hurricane Alley means more pain at the pump--especially if another big storm hits or events in the Middle East disrupt supply. Katrina sidelined nine refineries that account for about 12% of U.S. capacity. By the end of last week, the storm had prevented production of 547 million bbl. of crude, a 25-day supply. Offshore oil production in the Gulf accounts for nearly 10% of U.S. daily consumption. Worse yet, natural-gas production also shut down, costing us about 8.3 billion cu. ft. a day, which is 13% of what we consume, according to the U.S. Minerals Management Service.

Although the U.S. Energy Department says Katrina didn't damage production as badly as Ivan did a year ago, one energy executive, trading private e-mail, fretted that "the oil industry might be impacted for a year by Katrina." Several days after the storm, the price of gasoline moved above $3 per gal. in cities from New York to Los Angeles, and the government reported receiving more than 5,000 calls to its price-gouging hotline.